Former PR Official Indicted in DWP Overbilling Probe

Douglas R. Dowie, a leading Los Angeles public relations consultant, political fundraiser and confidant of Mayor James K. Hahn, was indicted Thursday by a federal grand jury on charges that he directed a criminal conspiracy to bilk city government out of hundreds of thousands of dollars.

Dowie, 57, of West Hills, routinely ordered subordinates at Fleishman-Hillard, an international public relations firm, to inflate the number of hours they worked under contracts with the city’s Department of Water and Power and the Port of Los Angeles, as well as with two private clients, the indictment charged.

Dowie, who became general manager of the firm’s Los Angeles office in 1999, was accused along with John Stodder Jr., who oversaw the firm’s public affairs practice in Los Angeles from 2002 to 2004. Both were terminated in January.

Stodder, 49, of Palos Verdes Estates, was initially indicted in January on similar charges for participating in a scheme with “others known and unknown.” Thursday’s superseding indictment added Dowie’s name, expanded the amount allegedly stolen from $250,000 to $325,000 and included a conspiracy count against both men.

Dowie and Stodder have maintained they are innocent.

The indictments of Dowie and Stodder are the first to come from a probe into city contracting, launched amid accusations that some contracts are awarded to those who “pay to play” through campaign contributions or political fundraising.

Dowie allegedly ordered about $75,000 in false billings in 2000, before Stodder joined the firm, and combined with Stodder to order an additional $250,000 in false billings in 2002 and 2003, according to the indictment.

The indictments of Dowie and Stodder followed a Times investigation, published last July, in which seven former Fleishman-Hillard employees told the newspaper about the alleged overbilling scheme.

The mechanics of the alleged fraud were crude, as captured in e-mail exchanges set forth in the indictment.

In January 2003, the indictment charged, Dowie e-mailed Stodder to ask whether they could “pad” the monthly bill to the DWP by adding $30,000 of “ambiguous counseling for the mayor” and two other top DWP executives.

Stodder e-mailed back to say that $30,000 was “more than the system could bear” but that a subordinate and alleged co-conspirator, who was not identified in the indictment, had told him that $15,000 was doable. The subordinate said “she could ‘slip though another $15k without incurring too much more scrutiny,’ ” Stodder wrote.

In a continuing exchange, Stodder wrote Dowie again to say the subordinate would “just add hours across the board,” the indictment said.

In allegedly inflating the monthly DWP bill by $46,000 in August 2003, the same subordinate allegedly e-mailed Stodder to say she was adding “activities for just about everyone that will pass the smell test.”

Stodder responded by e-mail: “Thank you. I totally understand.”

Fleishman-Hillard was hired by the city during the administration of Mayor Richard Riordan to help the DWP cope with changes in the state’s electricity regulations.

At first, it had only a subcontract. Then Steve Sugerman, Riordan’s communications director, went to work for the firm. It soon got a much larger contract.

Sugerman was Stodder’s predecessor as head of the public affairs section and now runs his own public relations firm in Los Angeles. He was referred to in the indictment, although not named, as another conspirator who allegedly helped Dowie in 2000, according to people familiar with the case. His lawyer, Ellyn Garofalo, declined to comment Thursday.

The idea behind hiring Fleishman-Hillard was that the city-owned utility needed top-quality help polishing its image. It was thought to be dangerously moribund at a time when it might lose its monopoly status and have to compete with private utilities for customers.

Even after the deregulation threat faded, however, Fleishman-Hillard officials were able to persuade city government that their services were worth retaining.

Dowie helped by ingratiating himself with Hahn, who succeeded Riordan in 2001. Dowie raised money for Hahn’s political campaigns and became a valued unofficial advisor, using Fleishman-Hillard’s $3-million annual contract with DWP as a vehicle to burnish the mayor’s image.

Records show that the DWP paid Fleishman more than $400,000 in 2002 and 2003 to help the mayor’s office with work that had less to do with the DWP than with crafting Hahn’s responses to civic crises and helping him develop major policy initiatives.

At the same time, the indictment said, Dowie cheated DWP ratepayers and city taxpayers by directing a scheme to pad bills. He acted when revenue to be collected by the Los Angeles office fell short of the monthly billing projections submitted to Fleishman-Hillard headquarters in St. Louis.

Dowie’s attorney, Thomas Holliday, said Thursday: “We’re very disappointed. We’ve cooperated completely with the government. We believe the charges are ill-founded and misplaced, and we look forward to presenting our position in court as soon as possible. We expect Mr. Dowie will be completely vindicated.”

In a letter last week to a Times editor complaining about the newspaper’s original article, Dowie asserted that he had done nothing wrong and said, “I’ve passed a polygraph test.”

Stodder’s attorney, Jan Handzlik, said: “Mr. Stodder looks forward to all of the facts coming out at trial.”

U.S. Atty. Debra Wang said in a statement: “This case involves the abuse of public trust because the true victims in this case are the taxpayers in the city of Los Angeles, who deserve to receive the full value of services for their tax dollars.”

Fleishman-Hillard has acknowledged overbilling the city, apologized and agreed to pay nearly $6 million to settle a civil lawsuit brought by City Atty. Rocky Delgadillo.

Delgadillo said he was not surprised by the indictment, adding: “You don’t pay $6 million if no one did anything wrong.”

Both Delgadillo’s lawsuit and the criminal investigation came after The Times in July quoted former Fleishman-Hillard employees as saying they were encouraged -- and sometimes told -- to falsify their hours each month under the DWP contract.

Two of the employees said Dowie was aware of, and encouraged, phony billings.

The former employees told The Times that the DWP account was regarded as the firm’s “cash cow.”

“The need to increase the hours was communicated pretty bluntly,” said one former employee, who asked to remain anonymous. “Different people were approached and told how many hours they needed to add. It would be [put] in those words.”

This end-of-the-month exercise, called “writing up” hours, was even discussed at meetings of the public affairs group in the Los Angeles office, said another former employee.

“It was an open secret, and that kind of shocked me,” the former employee told The Times last year. “I mean, if you’re stealing $30,000 ... you’d think you’d keep it quiet.”

After The Times published the article, City Controller Laura Chick launched an audit, which found $4.2 million in questionable charges by the firm over five years.

The company, which suspended Dowie last summer before firing him and Stodder in January, said its own internal audit came up with $640,000 in questionable billings. But it agreed in April to pay the city $4.5 million in cash and to forgive $1.2 million in outstanding bills.

The Fleishman contract became an issue in the mayor’s race. Hahn’s opponents, including Mayor-elect Antonio Villaraigosa, seized on it and other investigations of alleged corruption to criticize the mayor’s leadership. Stodder’s indictment in January intensified the criticism.

Villaraigosa said Thursday he would take steps to make sure his administration is not subject to the same alleged abuses.

“As the judicial process and investigation into this sad and unfortunate chapter in the city’s past continues, I want to make it clear that I look forward to beginning a new chapter on July 1, a fresh start: one with high ethical standards, greater management responsibility and accountability and stronger stewardship of the public’s money,” Villaraigosa said.

In addition to the DWP, the indictment charged Dowie and Stodder with directing schemes to pad bills under a smaller contract Fleishman-Hillard had with the port, with the firm of renowned architect Frank Gehry and with the Worldwide Church of God.

The indictment said these bills were inflated on multiple occasions in 2003.

Richard Kline, Dowie’s replacement as head of the Los Angeles office, said in a statement:

“We deeply regret any improper actions that occurred in our Los Angeles office. We have been cooperating fully with the investigating authorities.”

Kline said neither he nor “anyone else in corporate management in St. Louis was aware of any improper activities.”

Authorities familiar with federal sentencing patterns said Dowie and Stodder each would probably face three to five years in prison if convicted, although the maximum sentences they could face are higher.

Dowie is expected to surrender today and be arraigned in federal court Monday. Stodder remains free on bail.

A gruff ex-Marine and former managing editor of the Daily News in Los Angeles, Dowie had become a force in local politics because of his connections to Hahn.

Stodder, a former reporter, once served as an advisor to Mayor Tom Bradley and as a communications aide to county Supervisor Ed Edelman, who left public office in 1994.

Times staff writer Patrick McGreevy contributed to this report.